Europe is sitting on a ridiculously gigantic pile of $12.6 trillion in US assets, more than the rest of the world combined together… twice over. Bonds, equities, you name it. Sounds like real leverage, doesn’t it? Well… it’s not. Because when it comes to trade wars, holding that much American capital doesn’t mean you can actually do anything with it. The talk started again after Donald Trump reopened the Greenland nonsense, challenging Europe over the territory’s sovereignty. Alongside that came the expected likely-empty tariff threats. Predictably, European leaders started posturing. Emmanuel Macron and Kaja Kallas are pissed. Strategists explain why a fire sale from Europe won’t work Some investors are whispering about the possibility of Europe unloading US Treasuries and stocks. The logic is simple. America runs huge deficits and depends heavily on outside capital. If Europe, its biggest lender, decided to pull back, US borrowing costs could spike, and stock prices could tank. But even the people floating that theory admit it’s not that simple. Most of that $12.6 trillion isn’t in government hands. It’s sitting in private portfolios and investment funds. As George Saravelos from Deutsche Bank puts it, “Europe owns Greenland. It also owns a lot of Treasuries.” But even he knows this would hurt Europe more than help. Saravelos estimates $8 trillion of the assets are directly held by European investors. The rest flows through custodians and vehicles based in the region but may be owned by outsiders. Either way, governments can’t just force private holders to sell. And even if they could, it would be economic suicide. Markets have already shown their nervousness. After Trump’s latest round of tariffs, US equity futures dropped. European stocks didn’t fare much better. The dollar slipped. Meanwhile, safe-haven assets like gold, the euro, and the Swiss franc all climbed. Just like what happened in April last year, when Trump rolled out the “Liberation Day” tariffs and the Sell America trade kicked off. EU weighs tariffs, trade deal freeze as immediate options So far, Europe’s most realistic answer has been to stall the July trade deal with Washington. There’s also talk of hitting back with €93 billion (around $108 billion) in retaliatory tariffs on US goods. German officials are pushing for the strongest possible measures. But even they know that dumping assets would cross a dangerous line. Weaponizing holdings would drag the standoff into financial markets. It would no longer be a simple tit-for-tat trade fight. It would be a capital war. Saravelos again: “In an environment where the geoeconomic stability of the western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part.” Norway’s sovereign wealth fund is the biggest public holder (with about $2.1 trillion), but that’s still small compared to all the private capital tied up in US assets across Europe. Want to know something real funny? Some of those holdings aren’t even European at the end of the day. No one can absorb Europe’s holdings, not even Asia And here’s another funny: even if Europe wanted to sell, who’s buying? I mean, every seller needs a buyer, right? Right now, the total market cap of the MSCI All-Country Asian Index is about $13.5 trillion, and the Asian part of the FTSE World Government Bond Index is worth $7.3 trillion, according to data from Bloomberg. So Europe’s holdings come close to swallowing Asia’s entire investable universe. The math is not mathing. It’s a fantasy to think Europe would swap Nvidia for Japanese bonds overnight. And the US investment industry? Sure, they’re big. Maybe they’d take on some of the load if the price was right. But the US sits on a negative net international investment position of $27 trillion. The “right price” here might just mean the dollar becomes worth a heck of a lot less. Rabobank’s analysts nailed it: US markets are just too deep, too wide, too liquid. “While the US’s large current account deficit suggests that in theory there is the potential for the USD to drop should international savers stage a mass retreat from US assets, the sheer size of US capital markets suggests that such an exit may not be feasible given the limitations of alternative markets.” There’s also the Cold War logic. Think mutually assured destruction. China’s heard this tune before. Every time things get tense, someone suggests Beijing should dump Treasuries. Jinping never does. Why? Because doing it would blow up their own system. Paul Getty said it best: “If you owe the bank $100, you’ve got a problem. If you owe the bank $100 million, the bank has the problem.” China’s weak currency policy (which I previously explained extensively here ) means they have to hoard dollars. Over time, more of those reserves ended up in private hands to hide the total. Analyst Brad Setser estimated China’s “shadow reserves” were around $3 trillion in 2023. So you see, if Jinping ever actually dumps them, they’d crash their own markets first.
